Markets waver, fall again as U.S. tariffs against Canada, Mexico go into effect
The Associated Press | Posted: March 4, 2025 3:48 PM | Last Updated: March 4
Markets closed with broad losses Tuesday after volatile trading day
Stocks racked up more losses on Wall Street on Tuesday as a trade war between the U.S. and its key trading partners escalated, with a brief bounce-back in technology stocks failing to reverse overall losses amid shaky global markets.
Just after midnight, the U.S. imposed tariffs on imports from Canada and Mexico, and doubled tariffs against imports from China, sparking retaliatory actions from all three countries and inflaming concerns about a slowdown in the global economy.
The uncertainty was reflected in a volatile day of trading, with Canada's main stock index dropping 429.57 points, or 1.7 per cent.
U.S. markets fell hard early in the day, saw a slight rebound due to technology stocks, and then fell again.
The S&P 500 was down 1.2 per cent on Tuesday, with more than 80 per cent of the stocks in the benchmark index closing lower. The Dow Jones industrial average slid 1.6 per cent.
The Nasdaq composite ended the day with a loss of 0.4 per cent after a roller-coaster ride of falls and climbs. The tech-heavy index briefly reached a 10 per cent decline from its most recent closing high, which is what the market considers a correction, before paring its losses.
Markets in Europe also fell sharply, with Germany's DAX falling 3.5 per cent as automakers saw sharp losses. Stocks in Asia saw more modest declines.
The recent declines in U.S. stocks have nearly wiped out all of the markets' gains since U.S. President Donald Trump's election in November — gains that were built largely on hopes for policies from Trump that would strengthen the U.S. economy.
Worries about tariffs raising consumer prices and reigniting inflation have been weighing on both economists and Wall Street.
Under the new tariffs, imports from Canada and Mexico are to be taxed at 25 per cent, while Canadian energy products are at 10 per cent. The 10 per cent tariff that Trump placed on Chinese imports in February was doubled to 20 per cent.
Canada has already slapped tariffs on $30 billion worth of American goods, and has promised to introduce tariffs on $125 billion more in three weeks. Prime Minister Justin Trudeau, citing a Wall Street Journal editorial, called Trump's targeting of Canada a "very dumb" move, adding that more non-tariff measures are coming if Trump doesn't back down.
China has announced it will impose additional tariffs of up to 15 per cent on imports of key U.S. farm products, including chicken, pork, soy and beef, and expanded controls on doing business with key U.S. companies. Mexico is also planning tariffs on goods imported from the U.S., with more details to be announced on Sunday.
Loonie sits at $0.69 against U.S. dollar
The U.S. dollar index hit its lowest level since Dec. 6, 2024, on Tuesday morning, as concerns about the tariffs' impact on the broader U.S. economy initially outweighed expected boosts from the move.
"We've seen the dollar weakened, but I think this reflects markets' assumptions about how the tariffs will have a negative impact, not just on external growth, but ... on U.S. growth," Brian Daingerfield, foreign exchange strategist at Natwest Markets in New York, told Reuters.
After hitting a one-month low late Monday following Trump's confirmation of the tariffs, the Canadian dollar strengthened slightly overnight, while investors fled to safe-haven currencies like the Japanese yen and Swiss franc.
Mexico's peso fell for a fourth consecutive session on Tuesday, and its benchmark index slid to its lowest in five weeks
Reaction muddled amid uncertainty
The uncertainty surrounding the trade war — with experts unclear on how long tariffs and countermeasures could last — is one of the reasons the market response appeared muted at first, according to one expert.
"What we don't know is duration, and that's key," Derek Holt, vice-president and head of Capital Markets Economics at Scotiabank, stated in a note to clients. He added that Trump can be a volatile figure in terms of his decision-making, so it's unclear how dedicated he is to maintaining the tariffs.
"If they do last, then the effects on the [North American] economy and markets will be much larger. That might not take long, given guidance from the auto sector that shift cancellations and plant closures could begin within roughly a week after arriving."
Holt said the retaliatory measures put in place by Canada, Mexico and China have not been as extreme, at this stage, as what the U.S. has enacted, limiting some of the damage to markets.
'Sand in the gears'
But already, there's been a "massive sell-off in world markets," Colin Cieszynski, portfolio manager and chief market strategist at SIA Wealth Management, told CBC News, with Europe seeing "some pretty substantial sell-offs," including losses of more than two per cent in Germany and Italy.
"Tariffs throw sand in the gears of the global economy," he said. "And that's why we're seeing stocks everywhere selling off, because a trade war is bad for corporate earnings everywhere and for everybody."
WATCH | Analyst digs into the market reaction globally to U.S. tariffs:
He noted that some utilities and telecom companies, which are more insulated from trade wars due to a bigger domestic focus, are "actually up a little bit," suggesting some investors are defensively shifting their capital.
If tariffs remain in place for a year, Canada would "face the risk of a moderate recession," according to Douglas Porter, chief economist at the Bank of Montreal.
"With little confidence given the lack of historical precedent, we estimate that the tariffs will reduce real GDP growth by roughly 1.5 [percentage points] to around 0.5 per cent in 2025," he wrote in a note to clients, adding that this reflects the anticipated decrease in demand for Canadian goods from U.S. customers, which accounts for about a fifth of Canada's GDP.
Retailers, companies on alert
The tariffs are prompting warnings from retailers, including Target and Best Buy, as they report their latest financial results. Target slumped 4.6 per cent despite beating Wall Street's earnings forecasts, reporting that there will be "meaningful pressure" on its profits to start the year because of tariffs and other costs.
Best Buy plunged 14.1 per cent after giving investors a weaker-than-expected earnings forecast and warning about tariff impacts.
Automakers, one of the industries expected to be hit worst in the trade war, were already reporting losses on Tuesday. Ford and General Motors fell 2.9 per cent and 4.6 per cent, respectively, on Tuesday.
The Alliance for Automotive Innovation, a trade group representing nearly all major automakers in the U.S., warned on Tuesday that the trade war will lead to drastic price hikes, with some vehicle models anticipated to increase as much as 25 per cent.
WATCH | When will consumers feel the heat?:
At the consumer level in Canada, some impacts were immediate. Numerous province-wide retailers of liquor have announced that they are stripping their shelves of U.S. products, including in Newfoundland and Labrador, Manitoba and Ontario.
The Liquor Control Board of Ontario sells about $1 billion per year in U.S. products, Ontario Premier Doug Ford said Tuesday.
Business owners in Canada are watching the news with dismay. Steve Himel, president of Henderson Brewing Company, told CBC News Network that the company is already having to make changes to its yearly business plan.
"We will start experiencing this pain within days or weeks. But the uncertainty of this is something we are feeling right this minute," he said. "Is this going to last a week or a month? We don't know."